StockFetcher Forums · General Discussion · Position sizing for swing traders?<< 1 2 >>Post Follow-up
nikoschopen
2,824 posts
msg #56774
Ignore nikoschopen
11/15/2007 5:08:16 PM

Having just gone over the thread mentioned above in its entirety, I can't help but notice that I made some egregious mistakes that were outlined in the posts. I regurgitate for your pleasure some of the insights I thought were useful.




"It is an old maxim that accidents usually help the bears. Thus when prepared for the worst, the best will take care of itself."

Stops should not be based on how much you can afford to lose; instead, they should be placed where the market tells you a good spot is. To avoid getting stopped out needlessly, never place a stop where you think the market should go; place it a safe distance away from where your gut tells you. Never place stops near technical levels such as trendline, moving averages, previous highs and lows, congestion areas, and round numbers such as 10,000 in the Dow. These are too obvious and are very likely to get hit. When a market has made a triple top, you can be sure that there are loads of stops just above that area, which traders may try to trigger. At least the pros know that thatís where there is easy money to be made. If the market is just drifting around by these levels, it doesnít take much for a couple of locals to lift it a few points to hit those stops. Since these moves are not based on proper fundamentals, the market tends to come right back to where it was before the push. Remember, donít place stops at very obvious levels; think twice about where you are placing them and use a little bit of a buffer to give you some breathing room.

Here is the proper way to place a stop: let the market tell you where it should be placed. Stops that are based on what the market suggests is a good place to let you know you are wrong are the best stops. The advantage of using the market to determine risk is also that the risk becomes clearer and can be kept small. If it appears that the risk on a trade is too large, the trade is not a high probability one and should be avoided. Don't worry about missing trades. The worst thing that can happen is that you won't make any money. Not making money beats losing money every time, and there will be countless more chances to trade.

There are many ways to use technical analysis to place stops. They can be placed outside trendlines, moving averages, channels, support and resistance lines, the low of X bars ago, below a Fibonacci retracement level, or at previous market lows or highs. These are areas the market is likely to come to, and if they are broken, that may indicate a change in the direction of the market.

The Chart below outlines a couple of trades one can make. The first one (Point A) is a breakout of a previous high. If a trader made this trade and could afford to lose only a dollar per share, he would have to place a stop at N (which stands for "no"). This stop is very likely to get hit as it is above the channel and trendline and in the middle of nowhere. It doesn't get hit, but nevertheless it is a poorly placed stop. The better stops are at Level 1, under the channel line, which coincides with the previous low of the market. If the market breaks that level, the next stop will be at Level 2, which is a better place to have a stop as it is below a major trendline. Finally, one definitely would want to be out if it broke at Level 3, a recent major low. Overall, I don't think this is a great trade as the stop levels are quite a distance away. However, at Point B there is a great trading opportunity as one cold get in and risk to the channel line at Level4, which is pennies away. Levels 5 and 6 are similar to Levels 2 and 3. Needless to say, the stops at Levels 3 and 6 are just too far away at about $7 per share, and so they would be out of the question. The stops at Levels 2 and 5 are more modest but still a little too far away for the day trader and should be used only by a long-term trader. The stop at Level 1 is still a bit too far off, and so that trade could be ignored in this time frame, but since the stop at Level 4 is a technically good stop and is close to the market, it is a great place to take a trade. Tight stops are okay to have when they are technically correct. There is, however, one other possibility a trader could consider. Since the trade at Level A is a breakout, it could be taken, and one can use a move below the break line as a stop.



betyerbottomdollar
169 posts
msg #56828
Ignore betyerbottomdollar
11/18/2007 4:32:05 PM

I remember sittin on the pot one hot July morning thinking about position sizing (I didn't have any girlie magazines and had already read the ingredients of my shampoo about a million times). The question I had been posing to myself is, just how much difference is the risk/reward ratio for owning more positions rather than less?

I figured my risk was way more if I owned one stock than if I owned all 500 of the S&Ps. But then I would be limiting my gains to an average of all those 500 stocks. So, without doing loads of math on sheets of toilet paper, I figured that it really didn't matter whether I have one or 500 positions open. It is a difference of more risk = more gain vs. less risk = less gain. I suppose that is basic economics, but I decided that it made better sense to keep my commissions down by keeping fewer positions.

Here is how I do it.

I have ten damn good filters I use. They pick out an average of about three - six stocks per week, total. I divide my $$ into quarters and keep no more than four stocks at a time. Dats all. I set my exit (only one, for profit or loss) at the top bollinger band. Dats it. Set it and forget it. So now I can spend ages away from the market and not worry about my money (I returned from two weeks in New Zealand last night...ahhh).

http://www.youtube.com/watch?v=wq4P-3kDK1w


tmaugham
115 posts
msg #56830
Ignore tmaugham
11/18/2007 8:47:50 PM

Hey Mr. Dollar, care to share your filters?

Thanks,
Tom

welliott111
98 posts
msg #56833
Ignore welliott111
modified
11/18/2007 9:18:20 PM

General Discussion
9/23/2007
Are you trading every stock your filter returns?


betyerbottomdollar
169 posts
msg #56835
Ignore betyerbottomdollar
11/18/2007 10:46:21 PM

Yeah, I don't mind sharing. In fact, I have before. http://forums.stockfetcher.com/sfforums/?q=view&tid=55102&start=10

And yes, I do trade every stock my filters return if I have the capital. Money deserves to be invested.

tmaugham
115 posts
msg #56861
Ignore tmaugham
11/19/2007 9:45:35 PM

Mr. Betyer..

Thanks for sharing the filters, much appreciated.

However, I have a problem. When I try to execute some of your filters I get an error. For example, "60-day increasing slope channel
Show stocks where close is near lower bollinger band(20)" give me an error message that there is a systax error in "60-day increasing slope channel". Also, "8-day short-term closing price pattern" is an invalid pattern. Could you please explain?

Thanks very much,
Tom

tmaugham
115 posts
msg #56883
Ignore tmaugham
11/20/2007 2:07:57 PM

I may have made an error. I do get the above errors when running the filters from the forum screen but after saving them they run okay. Is this a glitch in SF or just an undocumented feature? .

Anyway, thanks for sharing!!!!

Tom

betyerbottomdollar
169 posts
msg #56886
Ignore betyerbottomdollar
11/20/2007 5:43:44 PM

Dunno bout that one...I ran them all perfectly last night. The 8-day price matching pattern may be a bit tricky...that is one where the price follows a certain pattern of up up up up up down down and up to the previous high point. The price pattern matching is a pretty cool feature.

StockFetcher Forums · General Discussion · Position sizing for swing traders?<< 1 2 >>Post Follow-up

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